WellCare execs well cared for …

February 22, 2011

Medicaid budgets all over the U.S. are facing sharp cutbacks, thanks to state fiscal woes. But for one company that has built a big business from contracts to run government health-care programs, it’s apparently time for a nice raise.

That company is WellCare Health Plans (WCG), a footnoted frequent flyer perhaps best known in recent years for the dramatic raid of its Tampa, Florida, headquarters in fall 2007 (an inquiry resolved after a restatement, the departure of several top executives, and settlements with the SEC and Justice Department). WellCare makes its money running Medicaid HMO plans covering 1.3 million people in seven states, as well as Medicare managed-care plans covering 116,000 people in a half-dozen states, and a Medicare prescription-drug plan covering 768,000 people nearly nationwide (49 states and D.C.).

On Valentine’s Day, the company’s compensation committee decided to give Chief Executive Alec Cunningham a big, sloppy kiss, in the form of a 23% raise, bringing his salary to $800,000, according to an 8-K filed at a few minutes after 5 p.m. on Friday. Cunningham also snagged a bonus of $1 million for last year’s work, up from $600,000 or so of incentive pay and discretionary bonus in 2009, when he mostly held a lesser job. (Thomas L. Tran, WellCare’s chief financial officer, got a more modest salary hike, of about 5%, to $500,000 from $475,000. Tran also got a bonus of $546,250.)

Never mind that some of its biggest customers, including the states of Florida and Illinois, are struggling with their biggest fiscal crises in years. After all, the company’s financial performance has improved of late, and those fiscal woes could actually help WellCare, as with the plan by Florida Governor (and ex-health-care exec) Rick Scott to cut costs Medicaid by putting more patients into managed-care plans like those run by WellCare.

But for shareholders, that was small consolation during 2010, as they got a less pleasant ride from the company: WellCare’s shares clocked in a decidedly unhealthy total return of -17.8%, trailing not only the S&P 500 (by 33 percentage points), but also its industry as a whole (by 27 percentage points).

Cunningham and his board, of course, aren’t stuck in the past — they’re looking to the future, as all good captains of industry should. Most immediately, that meant locking in the same bonus targets as Cunningham had for 2010, but now based on the new, higher salary. So hitting his targets will bring Cunningham a cool $1 million for his short-term bonus, and $2.4 million in long-term incentive payments. It isn’t quite the sweet deal WellCare gave Charles G. Berg, now its non-executive chairman, but it’s pretty nice nonetheless.

We also can’t help but notice that WellCare filed the pay-raise 8-K several days after the raises were adopted, and separately from another 8-K it filed the same morning, announcing the good news of an extension for its Georgia Medicaid contract (which it got into the filings the day after it received the letter). There’s nothing wrong with filing two 8-Ks on the same day of course, but it does make it at least a little more likely that shareholders will miss the second one, thinking they’ve seen it already.

So far this year, WellCare’s shares are performing well, so they may not begrudge Cunningham his raise. We have to wonder if the sentiment is shared by WellCare’s customers — also known as the taxpayers.

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